Microsoft steps up mobile strategy with Danger purchase

Microsoft Corp. kick-started its effort to grab a piece of the hot, youth-oriented messaging and social networking market by acquiring Danger Inc., the software driver behind the popular Sidekick devices at T-Mobile USA Inc. The purchase price was not disclosed.
Microsoft’s stock declined nearly 2% today, more likely a response to Yahoo Inc.’s formal refusal to accept a Microsoft offer for the Internet search firm, rather a clear response to the Danger deal.
The purchase spares Danger from attempting an initial public offering, which it said in late December it would pursue to raise about $100 million, according to media reports at the time.
Danger, based in Palo Alto, Calif., has lived dangerously, losing about $28 million in the fiscal year ending last Sept. 30; it lost $21 million the prior year – a not unusual situation for a privately funded startup that is slightly ahead of the market. The company has made steady progress in earning revenue, however; it earned $56 million on its top line in fiscal 2007, up from $49 million the prior year. The revenue picture is proof that Danger has plied a lucrative market, but the earnings losses underscore the company’s need for capital – thus the Microsoft deal.
For Microsoft, the Danger purchase provides personnel and software that the computing giant can use to further its mobile ambitions, particularly in the lucrative youth market, and doubles its arsenal of operating systems from one (Windows Mobile) to two.
Danger Sidekicks at T-Mobile USA are made by Sharp Corp. of Japan and Motorola Inc. and sell for $300 and $200, respectively. Danger also drives Hiptop devices sold by SunCom Wireless Holdings Inc., which is in the process of being acquired by T-Mobile USA, and in Europe and Australia.
Danger’s market will complement the prosumer/enterprise market addressed by Microsoft’s Windows Mobile OS, used in array of high-end devices by four of the world’s top five handset makers. (A deal with Sony Ericsson Mobile Communications to use Windows Mobile in some of its newest devices was announced yesterday at the Mobile World Congress in Barcelona, Spain.) Microsoft also has the hard-charging HTC Corp. in its corner, which is focused on high-tier smartphones and smartphone/laptop hybrids.
The smartphone segment is the fastest-growing and profit-rich sector in mobile devices and, not surprisingly, the smartphone OS market is increasingly fragmented.
Windows Mobile is steadily growing its share of that market from about 9% last year to a projected 13% this year, according to data from Nomura. This has slowed the dominant Symbian OS’s trajectory, which is nearly 50% of the smartphone market. Meanwhile, Nokia Corp., Symbian’s largest shareholder and by far the largest smartphone maker in the world, just acquired Trolltech, a Linux-based OS, which will be used by Nokia to refresh some of its advanced feature phones and smartphone models. Apple Inc. has shot skyward to a position just behind Nokia and Research In Motion Ltd. with the brisk sales of its iPhone, which uses a proprietary OS. RIM, which uses its own proprietary OS, holds the lion’s share of the enterprise market and is moving into the prosumer space, while Palm Inc., which has slid in the enterprise space, is looking to produce a new OS and straddle the prosumer/enterprise space as well.